Stock market game

[SymbolicFrank]

Someone asked me to make a game that helps explain people how stock markets work (and an app to tell you when you should buy and sell your real shares, but that's a different discussion).

After thinking it over, I think that would require a sim of the people involved, like a visually much simplified SimCity, where all the people are calculated. Starting with a bunch of farmers that mostly have horses for transportation and ending up with a simplified economy as we know it today.

They need to live somewhere, eat and drink, make and raise kids, have a job and a distance they can travel to buy and sell stuff. And all that has to be produced somewhere, by someone.

While that seems excessive, or at least far more complex than just explaining that shares are just commodities, worth whatever anyone wants to give for them, I don't think you can do it any other way if you want to make a game about explaining it.

Thoughts?

 

[Old One]

Have you ever played Capitalism or Capitalism 2?

 

[SymbolicFrank]

Yes, but they are very shallow. They don't really explain how it works, and there is no real simulation.

 

[Old One]

Well, your idea seems ambitious, but it certainly be interesting if you brought it to completion. Calculating "all the people" might be overkill though. I say so because that's already been the basis for entire games without even getting to a proper stock market.

 

[Monk]

There was a game from the '80s where the player made marketing, financial, and manufacturing decisions for each fiscal year for one computer company, and against two others. Results were revealed through income statements, balance sheets, market share, etc. Unfortunately, I can't remember the title. I think it was published by a business magazine.

 

[WhiteGuts]

Check out Offworld Trading Company.

 

[Comte]

Checkout the old game 1830 its a railroad and robber barons game with stock trading. It has a very strong A.I.

 

[SymbolicFrank]

The thing is, nowadays people use their smartphone to trade. Bad news? Within a few minutes, your stock is sold. Together with all the day-trading (Where you buy in the morning and sell in the afternoon on the same day) made it a totally different "game".

 

[Yaar Podshipnik]

What? Maybe small time retail traders use their smartphones. Nobody doing big trades is doing them on mobile, neither on buy side nor sell side.

 

[SymbolicFrank]

Yes, the big traders are sitting behind their computer all day.

They can all buy or sell within minutes.

 

[Yaar Podshipnik]

Where are you getting your data from? Things on sell side can happen in seconds, buy side can be well under a minute from PM making an order to trader executing and getting back a fill.

Algos evolve so fast that I don't have an idea how quick are they trading now - my guess is low milisec to med microsec.

 

[SymbolicFrank]

What I mean is, that stock today often doesn't pay dividend and as such is only worth whatever buyers want to give for it. It's yet another commodity. And as the price is determined by the last transaction, that price can go up and down pretty fast, especially because all the traders are behind a computer. $100 one minute, $30 or $170 the next minute.

The performance of the company has very little, if anything to do with it.

 

[Yaar Podshipnik]

What you're talking about is the fundamental vs. technical stock analysis. The price swigs you give as an example are extreme - that would be a very volatile stock.

Whether a stock pays dividend or not is not a property of the market but of the security. Lots of equities (which you seem to be talking about) could pay dividend but don't, as the board of directors decide not to invoke that Corporate Action. There is also quite a lot of equities that don't have dividends in their structure.

 

[SymbolicFrank]

Well, if a company pays dividend, the price of their stock does have a benchmark.

In the past, you bought stock if you expected the dividend to pay more than the interest on a savings account. If the company did well, the amount of dividend paid was higher, so the intrinsic value of the stock was higher as well (higher Return On Investment).

Nowadays, we expect companies to make a profit every quarter, even if that requires them to fire most of their employees and sell most of their assets. That's also the reason why most of them don't pay any dividend anymore: it would be a huge burden on their balance sheet.

So, ironically enough, the share holders destroyed their own income by demanding a steady dividend each quarter.


Anyway, the only connection most companies have with their shares is the amount of money they make in the initial offering. After that, the only real connection to the company is the expectation that the upper management has shares as well and want them to do well.

Then again, if they do so, they tend to be accused of using insider information. They cannot win. Just sell them all initially, burn everything left and ignore them.


The last part is, that all the shareholders own the company. In the past. Because, nowadays most companies have also a small amount of "preferred" shares, which are the only ones that actually get a say in the matter. And there are many other ways to make sure the shareholders have no vote whatsoever.


tl;dr: shares are just a commodity, and emotion decides the value. That's all.

 

[Old One]

In any case, I really like the idea of a realistic stock market simulation. It's a good idea on a number of fronts.

Just pitching in with some encouragement.

 

[Mustawd]

Anyway, the only connection most companies have with their shares is the amount of money they make in the initial offering. After that, the only real connection to the company is the expectation that the upper management has shares as well and want them to do well.

Not just the first offering. A healthy first round of shares sold will help the cost of capital be lower for the company if/when they decide to do more offerings.